Legal protection systems, corporate governance and firm performance: a cross-country comparison

Purpose This paper builds on the “Law and Finance” theory and aims to examine the effect of the legal and institutional environment on the governance–performance relationship in the context of non-US firms. More precisely, it examines whether and how the country’s legal system and the level of investor protection interact with the firm-level corporate governance and affect firm performance. Design/methodology/approach The authors used the “G-Index” governance score developed by the Governance Metrics International rating for a sample of 12,728 firm-year observations from 23 countries over the 2009–2016 period. Findings The results show that the interaction between the country-level institutions and corporate governance system significantly affect the firm performance. In particular, the findings indicate that firms operating in common law countries tend to exhibit a positive valuation effect and higher performance than firms with a comparable corporate governance level operating in civil law countries. More precisely, the authors find that in common law countries, higher investor protection with enhanced corporate governance is associated with better firm performance. However, firms operating in civil law countries with weaker investor protection and a comparable corporate governance level tend to experience a negative valuation effect. Originality/value The findings suggest that the institutional and legal environment is crucial and important in determining the value-maximizing level of good governance practices. Managers and regulators should carefully analyze the cost of these initiatives and should coordinate it with the needs of the country’s legal system. The challenge for the company will be how to adjust its corporate governance strategy according to the needs and demands of the country’s legal system in which the company operates to improve its performance. The regulators should ensure a fit between the specifics of the national legal and institutional environment and corporate governance standards and practices.

Inter-Firm Connections, Alliance Formation and the Value Created by Alliances

We investigate the impact of inter-firm connections on alliances. We find that both professional connections and social connections, borne out of board interlocks, employment ties and educational ties, increase the likelihood of alliance formation. In addition, the market reacts more favorably to alliance announcements in the presence of such connections, and this positive valuation effect increases with the degree of information asymmetry between the partner firms. Our findings are consistent with inter-firm connections creating value because they facilitate the flow of information between partner firms, thereby reducing moral hazard concerns and the risk of ex-post opportunistic behavior.

INVESTOR SENTIMENT AROUND BUYBACK IN INDIAN STOCK MARKET

While Buyback helps companies to invest in themselves by reducing the number of outstanding shares in the market, it increases the investor sentiment with respect to the company as the investors expect an increased Earnings Per Share, When the Earnings Per Share increases, the market react positively and shares prices will increase. This study attempts to examine the significance of stock price behavior around the public announcement of buyback. The effect of public announcement is studied by analyzing the behavior of abnormal returns of ten companies, which made buyback announcement during the financial year 2018–19. The companies were selected from securities exchange board of India (SEBI) and National Securities Exchange (NSE) website that portrays the public announcement of all such companies. This is an event study which attempts to measure the valuation effect of a corporate event, namely public announcement of buyback by examining the response of the stock price around the announcement of the event. To test the impact of public announcement Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR) are computed. The study concludes that the buyback announcement does not have any significant impact on the share price. KEYWORDS: Buyback, CAR, Abnormal Returns, Investor sentiment